Understanding Federal Tax Rate Brackets

Under the guidelines from the Internal Revenue Service (IRS), there are seven possible federal tax rate brackets in this country. Those brackets indicate the percentages of taxes paid, which are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The tax system in this country is progressive in nature. This means that, the higher the income, the higher the taxes that need to be paid as well. However, that doesn’t mean that those in the top tax rate brackets will also pay the highest rate of tax on all of their income. Rather, they pay it on the income that goes over the threshold of the bracket as shown below.

Additionally, the federal tax rate brackets vary depending on how people file their returns. It could be a single individual, for instance, or married individuals filing jointly, to name but a few. While this doesn’t change the percentages of tax that has to be paid, it does change how high the earnings can be before these tax rates are implemented.

Of course, each year, there are also significant changes to the federal tax rate brackets. These changes are designed to keep up with inflation, thereby ensuring that people continue to have a similar disposable income as they did the previous year. Hence, before you file your taxes, you have to make sure that you check which rates are applicable this year.

Federal Tax Rate Brackets – Examples:

In 2016, if you were a single individual earning $415,050 per year or more, or a married couple filing jointly earnings $466,950 per year or more, you would pay 39.6% tax. However, you would only pay that on your earnings above the $415,050 or the $466,950 respectively. If we look at the single individual, taxpayers would need to pay:

– 35% over their income ranging from $413,351 to $415,050
– 33% over their income ranging from $190,151 to $413,350
– 28% over their income ranging from $91,151 to $190,150
– 25% over their income ranging from $37,651 to $91,150
– 15% over their income ranging form $9,276 to $37,650
– 10% over their income up to $9,275

Remember that the amount thresholds are different for single filers, heads of household, married couples filing jointly, qualifying widows, and married couples filing separately. And remember as well, that this year’s amounts have changed from those of last year, although not by much per year.

Understanding The Federal Tax Rate Brackets:

There are numerous tables available online that explain exactly what the rates were in 2016 and what they are in 2017. They also indicate how the filing status differs, and what impact that has on the amounts. Because the IRS makes those adjustments for inflation each year, you have to check the brackets each year so that you don’t make a mistake. If you are ever unsure about what you are doing, it is better to seek professional help than to make a guess. Guessing it wrong could cost you quite dearly and should be avoided at all costs.